JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon (photo), compares bitcoin to tulip mania, predicting a collapse. Still, he says, it’s a good option for murderers and drug dealers.
If a JPMorgan trader began trading in bitcoin, he said, “I’d fire them in a second. For two reasons: It’s against our rules, and they’re stupid. And both are dangerous.”
The cryptocurrency “won’t end well,” he told an investor conference in New York on Tuesday, predicting it will eventually blow up. “It’s a fraud” and “worse than tulip bulbs.”
Tulips are a reference to the mania that swept Holland in the 17th century, with speculators driving up prices of virtually worthless tulip bulbs to exorbitant levels. That didn’t end well.
Well, it ain’t Jamie Dimon, but there’s another heavy hitter at JPMorgan Chase & Co. who isn’t a fan of cryptocurrencies.
Global Head of Quantitative and Derivatives Strategy Marko Kolanovic said: „Cryptocurrencies cannot be reliably valued and they have significant ‘tail risk’ that could come in the form of a regulatory ban,” writes Kolanovic. „Moreover, the whole cryptocurrency market exhibits some parallels to fraudulent pyramid schemes.”
It’s likely that other governments will follow in China’s footsteps and crack down on digital currencies, he added.
„While we don’t know whether the price of cryptocurrencies will go up or down in the near-term, the history of currencies, governments and financial fraud tells us that the future for cryptocurrencies will likely not be bright,” according to the strategist.
Bitcoin has soared in recent months, spurred by greater acceptance of the blockchain technology that underpins the exchange method and optimism that faster transaction times will encourage broader use of the cryptocurrency. Prices have climbed more than four-fold this year — a run that has drawn debate over whether that’s a bubble.
Bitcoin initially slipped after Dimon’s remarks. It was down as much as 2.7 percent before recovering. Last week, it slumped after reports that China plans to ban trading of virtual currencies on domestic exchanges, dealing another blow to the $150 billion cryptocurrency market.
In bitcoin’s case, Dimon said he’s skeptical authorities will allow a currency to exist without state oversight, especially if something goes wrong. “Someone’s going to get killed and then the government’s going to come down,” he said. “You just saw in China, governments like to control their money supply.”
Blockchain can be useful
Dimon differentiated between the bitcoin currency and the underlying blockchain technology, which he said can be useful. Still, he said banks’ application of blockchain “won’t be overnight.”
The bank chief said he wouldn’t short bitcoin because there’s no telling how high it will go before it collapses. The best argument he’s heard, he said, is that it can be useful to people in places with no other options — so long as the supply of coins doesn’t surge.
“If you were in Venezuela or Ecuador or North Korea or a bunch of parts like that, or if you were a drug dealer, a murderer, stuff like that, you are better off doing it in bitcoin than U.S. dollars,” he said. “So there may be a market for that, but it’d be a limited market.”
To be sure, Dimon later noted that his daughter purchased some bitcoin.
One place where cryptocurrencies and traditional finance are coming together is at CBOE Holdings Inc., the owner of the Chicago Board Options Exchange. Last month, the firm teamed up with Gemini Trust Co. with a plan to offer bitcoin futures.
CBOE’s chairman and CEO, Ed Tilly, defended such efforts after Dimon’s remarks.
“Like it or not, people want exposure to bitcoin,” Tilly said. Believers can bet on its rise, and Dimon is welcome to take the other side, he said. “We’re happy to be the ones in the middle.”
Photographer: Marlene Awaad/Bloomberg
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